Costco 1999 Annual Report Download - page 5

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‘‘Kirkland Signature’’ men’s and women’s cashmere sweaters. These are just a few examples of how we have expanded
and enhanced the Costco brand name. Additionally, we continue to grow our pharmacy operations, which this year
should top $1 billion in sales; and we expect to add 50 new gas stations to the 67 we operated at the beginning of fiscal
year 2000. These two businesses, along with our very successful optical shops, one-hour photo labs, food courts and
hearing aid centers have become a vital part of Costco’s appeal to its members and have created a discerning
distinction between Costco and its competitors.
We continue to experiment with new member services for our Executive Members, and we now have in excess of
135,000 paid members in this program. We are confident that we are on the right track and that our Executive
Member rolls will show substantial increases over the next several years. Overall, Costco membership rolls now include
nearly four million Business Members and ten million Gold Star Members; and including Business Add-on cards and
free spouse cards, over 30 million people in North America now carry a Costco card. Equally important, our members
remain loyal to our business by renewing at a rate of 86% annually, which is the highest renewal rate ever achieved in
our Company’s history.
Just before fiscal year-end, we announced a major alliance with American Express Company, whereby we would
immediately begin accepting American Express cards in all U.S. Costco locations, and shortly thereafter jointly
introduce two new co-branded cards. Just last month, the two co-branded cards were introduced, which bring unique
features and benefits to our members. The consumer card is an American Express ‘‘fee-free’’ credit card (you still
must pay for the Costco membership) that provides the cardholder with an annual rebate reward on all purchases
made on the card—both at Costco and elsewhere—with the reward coupon redeemable at Costco. The business card
is also an American Express ‘‘fee-free’’ charge card. In a ‘‘first’’ for American Express, these two co-branded cards will
also serve as Costco membership cards with Costco membership information (including the member’s picture) on the
back of the card. An agreement was announced just last month to offer a similar program to our more than 2.4 million
members in Canada.
We and American Express are both very excited about our new partnership. We believe American Express is a
fantastic company, with similar customer philosophies to Costco; a great degree of member/customer loyalty; and
overall, an upscale consumer and small business focus. We believe that the card acceptance and co-branded card
issuance are the first of many unique and strategic business opportunities that will benefit both Costco and American
Express, along with the millions of members and cardholders of our two companies.
Costco’s e-Commerce site—www.costco.com—anniversaried on November 2nd, and we are very enthusiastic with
our progress to date. We have a high quality website that has consistently received high marks for content and ease of
use. We currently have over one million members registered with our site and expect that number will exceed two
million by the Spring of 2000. Additionally, our special arrangement with Microsoft for unlimited internet access via
MSN/Costco at a 40% discount (currently $11.99 a month paid in three-month intervals) affords us the unique
position as a retailer to offer a high speed internet portal site, at a great savings, to our members. Costco is committed
to capturing the potential of this business, and we will not let this potential bypass us.
As evidence of the importance we place on Executive Membership, the Costco/American Express relationship
and e-Commerce, we have recently named Paul Moulton to the position of Executive Vice President in charge of these
Special Member Service areas. Paul has been with Costco for 14 years in a variety of positions…from Warehouse
Manager, to Vice President—Treasurer, to Senior Vice President—UK Operations, to Senior Vice President—Asian
Operations to Senior Vice President—Information Systems. Working with Paul are Bob Craves, Senior Vice Presi-
dent—e-Commerce, Publishing and Community Giving and Court Newberry, Senior Vice President—Marketing and
Member Services. Both Bob and Court were part of the founding management team at Costco and, along with Paul,
will assure strong leadership and focus in developing these valuable programs for Costco.
In summary, we firmly believe that our business is on course to show further growth for years to come. As always,
we thank our 70,000 fellow employees who make all the good things happen. We are grateful not only for their hard
work and dedication, but also for the loyalty they exhibit by staying with our Company despite being the targets of all
our competitors. We believe that, together, we have created a truly valuable brand in the Costco name, a brand that we
are committed to continually enhancing in the eyes of our member customers, our vendors and you, our shareholders.
We appreciate your support as a Costco shareholder and Costco Member. We hope we will see you at our annual
meeting on January 27th in Bellevue, Washington.
Cordially,
Jeff Brotman Jim Sinegal
Chairman of the Board President & CEO